Two Utah lawmakers, coming from different political viewpoints, are pushing bills in this month's Legislature that would require the state's $20 billion retirement fund to disinvest in firms that do business in Iran and the Sudan.
Rep. Julie Fisher, R-Fruit Heights, and Rep. David Litvack, D-Salt Lake, both have bills that could force the Utah Retirement System to take money out of firms divest their investments if they have dealings with those two countries, which are abusing human rights in various ways, they say. Fisher's bill deals only with foreign firms, Litvack's with domestic and foreign firms.
Fisher said that the state system should not be investing in a country that supports terrorism, especially against American troops in the Middle East.
"It really bothers me that we are sending our sons and daughters over to Iraq to fight for our freedom when our own state retirement system may be investing in (Iran), the very economy that is trying to destroy us," she said.
The bill is supported by the Retirement and Independent Entities Interim Committee, although it will be heard again during the upcoming general session. During a November committee hearing, Fisher said that "whatever we can do (to fight) the war on terror, we should. And Iran is leading the terrorist movement."
Litvack said the basic idea of the bill he's drafting is to put investment pressure on the Sudanese government to stop the genocide in Darfur.
"It targets the worst offending companies," Litvack said. "We're really going after those that are contributing to the genocide."
These bills reflect a growing trend in financial circles for "socially responsible investments," said Dan Andersen, staff counsel for the Utah Retirement System. But it's also a trend that could cost large public retirement systems considerable money, both through additional consulting costs and potential lost profits, while showing little benefit to the original causes, he said.
The bills, he said, should be rejected because they are "ineffective, costly, burdensome, inefficient, fraught with legal problems and (could well) violate the principles of federalism." Federal courts have already struck down some state SRI laws as being unconstitutional because they stepped into foreign policy, a right reserved for the federal government, Andersen added.
The URS currently is not under any legal requirements on where its investments can go, other than standard investing laws followed by most public funds. Even if there were special laws for the URS, however, they could be difficult to implement because the system works with various consulting firms. "We try to have the safest and best investments but that's it," Andersen said. Over a 30-year span, the URS has made just under 10 percent interest each year, a rate considered very good by industry standards. "We have 130,000 people in our retirement plan, between those who have retired and those still working" and contributing to the URS, he said, and the system's job is to maximize their pensions, not taking up social causes, no matter how good they might be.
These types of proposals are not new, either to Utah or the nation. In previous years, the Legislature has toyed with requirements that the URS invest in Utah firms or divest themselves of "sin" businesses, such as tobacco or liquor companies. In all of the cases, the URS convinced legislators that a hands-off approach was better.
Nationally, 22 states have Sudan divestment policies, and 15 of those are the same as Litvack's proposal, said Max Croes, advocacy associate for the Sudan Divestment Task Force, based in Washington, D.C. The task force ranks the companies that are the "highest offenders" in the war-torn Darfur region to help guide investors. The Utah Retirement System currently invests in two of those Alstom, an international transportation and energy company, and Koenig Bauer AG, a German construction company, Andersen said.
Croes credits divestment with encouraging nine companies, so far, who have either withdrawn from Sudan or started to confront the government and actively aid marginalized people. One of those nine is Schlumberger, a French company that sells oil rigs to Sudan, and one in which the URS also invests.
"They've committed to establishing humanitarian policies that are lasting," Croes said. "They have committed to reforming their action."
Various studies, however, show that divesture along SRI models becomes a symbolic gesture, rather than having a real economic impact on either the firms or the offending governments, Andersen said. It can have a real impact on the rate of return for retirees. For example, divesting themselves of companies that have operations in Iran would mean that the URS would not be investing in a large chunk of the Middle Eastern energy sector.
"We're in the process right now of trying to find out just how much it would cost us to even hire such special consultants," said Andersen. A recent study found that it will cost the California retirement fund $17.8 million to divest unwanted stocks in only $2 billion of its large fund, he added, and over five years the lost economic value of divesture could be $725 million to California retirees.
Still, divestment policies may have political benefits, which could play a role in these specific bills since all of the House members, half of the senators and Gov. Jon Huntsman Jr. are all up for election this year. A critic of the bill, whether a legislator or investment adviser, risks having his or her patriotism questioned. In fact, Andersen said, that has already happened to the URS, even when they assure legislators that they do not ever want to intentionally invest in a firm that supports international terrorism or genocide.During a November public hearing, Sens. Chris Buttars, R-West Jordan, and Carlene Walker, R-Sandy, got into a verbal spat over Fisher's bill, with Walker accusing Buttars of questioning her patriotism, and Buttars saying perhaps he was.